Construction Risk Management: Which Project Delivery Method is Right for You?
All building construction projects are not the same and you as an owner must decide how much time and energy you can commit to the project – like paperwork and billings, not to mention managing multiple firms and conflicting agendas and personalities.
The construction risk management process is one of the most important aspects of any construction project. By understanding and identifying potential risks, you can develop a construction risk management plan to mitigate or avoid them altogether. But with so many different types of risk factors – from weather and climate to faulty materials and equipment – how do you know which ones pose the greatest threat to your project?
One way to manage risk is to choose the right project delivery method. The delivery method you choose will play a critical role in deciding how much project risk (and headache) you take on as the Owner. Here are four of the most common delivery methods and how they can impact your project’s safety risk profile:
Let’s break it down.
Using this method, you would be responsible for hiring independently an architect and a general contractor, and other consultants as need are. The architect hires engineers, and possibly other consultants to put together a complete design package including plans, risk assessment, and specifications.
When the design is fully complete, they are then sent out to a list of general contractors (GC) to bid on the project based on the plans and specs you send them. In Design-Bid-Build, you have little control over the quality, and the lowest price wins. Ever heard the saying “you get what you pay for”?
In other words:
- The GC has zero input in the early phases of the design which could lead to many change orders down the road, equating to lost time and dollars
- You have many points of contact to manage – detail overload!
- Initial project cost is not established until the GC is hired and bids on the project – You may have a budget in mind, but you won’t know until the project is bid out and the GC is hired if that budget is realistic
- The final project cost won’t be known until the dust settles and the project reaches completion.
- You have no say in the selection of subs which can yield schedule and quality challenges
- Proven slowest time from inception to completion of the three (3) prominent project delivery methods
This method is less collaborative and more competitive, by nature. Because the construction companies are independently approving the architect’s drawings, the liability for any misalignment of plans and construction specifications falls to the Owner and that equals RISK. Additionally, the Owner holds the contracts separately while holding the responsibility to act as the intermediary if or when a dispute exists between the parties.
So why choose Design-Bid-Build if there are so many reasons not to and the risk is so high? Well, it’s usually the lowest cost, (but not necessarily the highest quality or fastest) And it’s the most recognized and traditional form of delivery method which also complies with the requirements for bidding on public work.
Construction Management at Risk (CM@R)
Using this method, you would still be responsible for independently hiring the architect and general contractor or other consultants, but instead of waiting to bring on the GC until after all the decisions have been made, you hire a construction manager (CM) to act as a consultant during the design phase to then take on the role of general contractor (GC) during construction. You now have a construction advisor at the table who can offer constructability advice and value engineering solutions to gain a better understanding of the cost and schedule before they begin construction.
- The CM/GC is chosen using a qualifications-based selection process
- The CM/GC has builder input during the design phase creating opportunities to save money and time
- You still have many points of contact to manage, and the design risk remains with you, the Owner
- A Guaranteed Maximum Price is usually established during or at the conclusion of the design phase from which all trades are usually competitively bid
- Subcontractors are pre-qualified by the CM/GC which may allow for Owner input
- The schedule can be fast-tracked through early bid packages and phasing of the work
Because the Owner holds the contracts separately, it’s the responsibility of the Owner to act as the intermediary and help facilitate the needs of each party during the process.
Although this delivery method is more collaborative than Design-Bid-Build, there remains a potential for disputes and assumptions between the parties. Additionally, the Owner remains responsible for changes and document completeness because the CM/GC and architect are not contractually obligated to one another in any way.
So why choose CM@R? Once the owner accepts the Guaranteed Maximum Price from the CM/GC, any additional cost overruns that are not the basis of a change order become the obligation of the CM/GC, not you! There is also increased cost control and accountability as the schedule and construction budget are discussed and developed in an open book relationship with the Owner. However, any changes the Owner makes to alter the agreed scope of work will remain the responsibility of the Owner.
Using this method, you as the Owner procure the design and construction services under one entity – the design-builder (DB). This would be a single contract to include both design and construction services as provided by a general contractor and a designer(s) usually consisting of an architect, engineers (and other consultants involved), but all falling under the responsibility of the design-builder and not you as the Owner. The general contractor and designer work together from the beginning as a team creating a collaborative and efficient method that leverages the strengths of single-source planning, design, and construction expertise.
- There is a single point of contact and there is minimal risk to you for design and construction
- The GC is involved at the very beginning, and they act as an advocate using their expertise and knowledge to select, negotiate and hold everyone accountable
- Value engineering is an integral process whereas “true value” is integrated into the design as you go and not after the fact
- A fixed price or guaranteed maximum price can be established much earlier (typically during the design development phase), so you know your price early in the process.
- Subcontracts are either competitively bid or negotiated depending on the procurement process requested or issued by the Owner
- Design risk for errors and omissions resides with the design-builder and not you the Owner
- The schedule can easily be fast-tracked to allow for an early field start while the remainder of the design trails the construction through phasing of the design completion
- Greater quality control and results are better maintained by engaging prequalified and predetermined trade partners very early in the design process
Design-build is the fastest-growing delivery method used today. Why? With the highest Owner satisfaction ratings and overall experience levels, design-build delivers results based on partnership, collaboration, and a shared vision of the project team – your DREAM Team.
Why choose Design-Build? if you are looking for one trusted point of contact, desire the support of a team that is dedicated to creating and communicating a unified vision and risk management plan, and want to confirm your budget early in the process with the benefit of value engineering and cost savings then Design-Build is the best option for you!
This option is a mashup of the first two and is becoming quite popular in the construction industry. In this scenario, the owner would procure the design services first and then solicit bids from general contractors (GCs) based on the completed design documents. The selected GC would then work with the designer to negotiate a guaranteed maximum price (GMP) for the project.
This option offers many of the same benefits as design-build including a single point of contact, early cost certainty, and schedule efficiency. However, there are also some potential construction project risks to consider with this method. One is that the GC may not be fully committed to the project during the design phase and could walk away if the price is not to their liking. Additionally, if the GC and designer are not on the same page, it could lead to finger-pointing and conflict down the road.
Why choose Design-negotiate-build? If you want the benefits of a single point of contact and early cost certainty but are not ready to commit to design-build, then this could be a good option for you. Just be sure to select a GC that you trust and with whom you feel confident that they will work well with the designer.
Public-Private Partnership (P3)
A public-private partnership, or P3, is a contractual agreement between a governmental body and a private sector entity. The objective of the P3 is to transfer the delivery, financing, and/or operating construction risks of a project to the private sector in order to provide improved service levels at a lower cost to the public entity. A key characteristic of P3s is that the private sector bears significant safety risks in terms of both cost and performance.
P3s can be used for a wide variety of project types, ranging from new construction to operations and maintenance, and can be structured in many different ways. The most common type of P3 in the United States is the design-build-operate (DBO) model, in which a private sector entity designs, builds, and operates a facility for a predetermined period of time, after which the facility is turned over to the public entity.
P3s are becoming increasingly popular as cash-strapped state and local governments look for ways to finance and deliver much-needed infrastructure projects. In many cases, P3s are the only way to get a project off the ground due to the lack of available public funding.
Construction Manager Agent (CMA)
A construction manager agent (CMA) is a third-party provider of construction project management services. The CMA provides these services to the owner of a construction project on behalf of the general contractor.
The CMA is responsible for coordination and communication between the owner, general contractor, and other subcontractors. In addition, the CMA is responsible for quality control, schedule management, and budgeting.
CMAs are often used on large, complex projects that require a high degree of coordination and communication between the various parties involved. CMAs can also be used on smaller projects, but they are typically not as necessary or cost-effective in those situations.
What to Consider Before You Make Your Final Decision?
Now that you know the five most common types of project delivery methods, it’s time to decide which one is best for your construction project. Here are a few factors to consider before making your final decision:
- The size and complexity of your project — With a large and complex project, you will want to consider CM at Risk or Design-Build.
- Your degree of involvement — If you want to be more hands-off, then CM at Risk or Design-Build might be a better option for you. With Design-Build in particular, the design-builder is responsible for managing the entire project from start to finish.
- Whether you have a preferred contractor or designer in mind — If you have someone you would like to work with, then traditional design-bid-build might be the best option since you can select your own contractor and designer.
- Your budget — All three delivery methods can work with any budget, but risk analysis of finances shows that Design-Build might be the best option if you want to confirm your price early on in the process.
- Your timeline — If you are looking to fast-track your project, then Design-Build is the best option since construction can begin while the design is still being completed.
- The level of financial risk you are willing to take on — With CM at Risk, you are taking on more risk since the contractor is not locked in at a fixed price. Design-Build is a good option if you want to minimize your risk since the design-builder is responsible for both the design and construction.
- Your preferred level of control — If you want more control over the project, then CM at Risk or Design-Build might be a better option since you will have a single point of contact.
- The type of relationship you want — If you are looking for more of a partnership, then Design-Build is the best option since it is based on collaboration and open communication.
The Bottom Line
The best delivery method for your project will depend on a number of factors, including the size and complexity of the project, your budget, your timeline, and your level of risk tolerance. Ultimately, the best way to decide which delivery method is right for you is to consult with a qualified construction professional who can help you weigh the pros and cons of each option. Connect with a member of our team.